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Archive for September, 2006

LandlordMax Customer Testimonial

Although LandlordMax is best known as the “Easiest Property Management Software”, easiest being our main differentiator, we also have a great reputation for customer service which I’m very proud of. A few days ago we received the following comment about our customer service:

“I would like to thank you for your exceptional service and prompt attention to my request.”

Stephen Lobue
Realtor/Property Manager
Kingdom Realty Group

Thank you Stephen for the great feedback! We’ll be adding it our Success Stories / Testimonials page very shorlty.

Weekly 7

Why they don’t upgrade (and what to do about it)
A good explanation of how to launch a successful upgrade!

Rent Control
An interesting argument on why rent control is not always a good thing.

Characteristics of Top Reddit Submissions
Some good statistics on the top rated submitted Reddit articles

Software activation and registration servers
This persons experience with software activation and registrations shows why it’s really important for the user not to have any issues during this process.

Why Smart Companies Do Dumb Things
A good analysis by Guy Kawasaki as always

Why Top Employees Quit
I think this article really hits on some of the main points of why employees quit. A couple points that I’d like to point out are: “Our pay scale doesn’t increase at the same rate as the market rates” and “Star Employees know their value.”

When Understanding means Rewriting
Jeff quickly points out that the majority of a programmers time is spent understanding code rather than writing new code, and I believe him. If you think about it, even adding a brand new feature probably consumes more time understanding the current code so that you know how and where to insert the code for the new feature.

How Much Effort is There in Each Software Update?

Software releases generally come in two flavors, updates and upgrades. Updates are small changes where the version number barely changes and mostly consists of bug fixes, enhancements (perhaps performance), and possibly some new small features. Upgrades are generally considered major releases and often the first number of the version changes. These include major enhancements and lots of new features. Now everyone knows a lot of work goes into major new upgrades, there’s no doubt when you look at the list of new features. But what about updates? How much effort is involved in releasing updates? More than most people realize!

I just took a look at all the updates we released for LandlordMax Property Management Software version 2.12, which is now at version 2.12e, and it was quite lengthy as you can clearly see from this list of new features and fixes for each update. What’s the best metric to show how much effort was involved? That’s very debatable. One could argue LOC (Lines of Code) but that’s very skewed.

To give you a quick idea of why that’s skewed, let’s take a look at some of the huge performance enhancements we did for version 2.12c. Between version 2.12b and version 2.12c, as you can see from the graph below, we added about 250 new lines of code. Very few. But if you look at the effort, it took us many man hours to accomplish, probably more than all the other updates combined! So why so few lines of code? Because we removed as much if not more software code than we added. On top of this, a lot of the time we made modifications to existing code (for example optimizing the database queries), where we didn’t add or remove any code but just changed it. Version 2.12c was by far the update that required the most effort but this isn’t accurately reflected in the lines of code…

LandlordMax Property Management Software Lines Of Code For Each Version 2.12 Update

I can already see the next question, what about just measuring the total amount of time taken to implement each new update rather than using lines of code as a metric? That would be great except that we don’t really keep track here at LandlordMax of what we do in that kind of detail. I don’t know myself if I’ve spent two hours on this, then three hours on that. I know the total amount of time I spend working on LandlordMax, but I don’t know exactly on what. And to be honest, I don’t want to subject myself to this level of time tracking (even daily tracking) just to have metrics, it’s a waste of time and money. I’d rather spend that time adding more features to the software. I’m not billing a client, I’m trying to produce a software product, therefore the details of where the time is spent is not as important as building a quality product. With that being said, I do have a good idea of how much time each update took, a good guess-estimate. And I can tell you that version 2.12c was the largest by far.

In any case, I can only use the best metric I have in hand since I don’t have enough details to graph the time spent per update. Although this is not entirely accurate it’s the best I can do. That being said, it’s interesting to note that between the initial release of version 2.12 and the final release of version 2.12 (version 2.12e), we’ve added over 2000 lines of code. Assuming 40 lines per page, that’s 50 pages of new code. And remember, that’s not counting how much code has been modified, how much code has been replaced, etc.

So to answer the original question, how much effort is there in each software update? A lot! Based on the previous releases using only the lines of code as a metric, I can assure you that if we based it on time it would be a much larger percentage, we’ve added 10% as much code as a brand new full version upgrade release to the updates!


Today someone posted a full article as a comment on my blog, including the “About the Author” with multiple links to their website. I’d ask that you please not do this. You can post a link to a relevant article you’d like to refer to in your comment, or even send me an email suggesting it for an article, but do not post the full article as a comment, especially not with the “About the Author”!

Also, what brought up my warning flags that this was a new form of comment spamming is that the entry in which this person posted their comment was that the entry wasn’t exactly related to the comment. It was in the same general area (real estate), but it didn’t fit with the post they commented on.

In any case, I’m going to give the person the benefit of the doubt and assume this was an honest mistake, even though I suspect otherwise. Today’s entry is also to let you all know that any such comment spam in the future will be automatically deleted.

UPDATE: For those of you who are interested, I posted the potential implications in more detail of this in my other SEO related blog (LearningCentre.com).

What's the Difference Between a Major Software Release and a Software Update?

As far as I’m concerned, an update should only consist of bug fixes or improvements in the software (performance, etc.), it should not include any new features. Major and minor software releases include the same fixes as updates, but they also include new features and functionality. This is what and ideal world would be for me, but the reality is not quite so black and white as you’ll soon see from my examples using my company LandlordMax Property Management Software.

Just a quick addendum for those of you who aren’t as familiar with LandlordMax Property Management Software, the way we do release versions is Year.Month. Year being how many years since the first version, and month being the month of the year. So if we were to release this month, it would be version 3.09, next month version 3.10, and so on. We do this because we offer one year of free upgrades to all releases of LandlordMax with each purchase, major and minor.

So why isn’t it so black and white? Sometimes it’s nice to add a quick little feature to an update to help our customers. We just can’t wait until the next major release, we want to offer it now! Maybe many of our customers requested it and we’d like to oblige them rather than make them wait for a full release, of even a minor release. For example, one feature we added to an update of version 2.12 (version 2.12a) was the ability to sort building units in a way that made much more sense to our customers.

Initially we had the units sorted alphanumerically, but this didn’t make sense to our customers. For example you’d get:


Whereas what you really wanted was:


You’ll notice that 2a is before 10a, which if you do an alphanumeric sort this is not the case. A small modification but it had a lot of implications to our users. This really helped them in searching for units because it makes more sense if you think about it from their perspective!

The biggest “enhancement” we did though was to greatly improve the performance of LandlordMax. Now should this be considered an update or a new release? This is debatable, and we went the view that this was an enhancement, hence an update (I’ve seen many software vendors use this as an excuse to launch a new release). But let me tell you this was no small feat, it involved many man hours!

Why didn’t we just release it as another minor update, say from version 2.12 to version 3.03, or something like that? Because if we did that, everyone who purchased the software that was eligible up to version 3.02 would not be able to receive this update. Was it significant enough for them to purchase an upgrade? Not likely, not unless they had a substantially large database. Was it worth it for them to upgrade? Yes, especially if they had larger databases. So it was worth an update but I doubt many would have paid for an upgrade, it wasn’t enough to validate the expense. But we wanted to release it sooner than later since it significantly affected our larger customers (we have many larger customers), and all our new potential customers trying out the software for the first time. Hence in this case we opted for an update.

This week we were faced with another situation. I was talking to one of our potential customers on the phone and he brought up a very good point. He had a 150 unit building, and was looking to add two more 150 unit buildings within the next few months. His issue was that he had to enter in all the tenant lease information AND all the scheduled accounting entries for those leases. Now I don’t know about you, but I could sure appreciate his argument of not wanting to enter in the same 450 similar pieces of information twice! He did suggest that he could have one of his clerks do it, but that would take time away from their other tasks, and I completely agree. This lead to the discussion of having the software automatically generate the scheduled accounting entry for each new lease when it’s initially saved for the first time. This is a great feature, one that we had planned on implementing before but that had been pushed back due to resource limitations. We only have so many resources and we try our best to implement the most sought after features and requests. In any case, I completely agreed with this gentleman, this is a feature that should be in the software sooner than later. After hearing his plight, I decided we could no longer wait for this feature, we needed to add it now rather than later.

Now here’s the dilemma, we’re also nearing another update release of version 2.12, version 2.12f. This update is mainly another performance update on the data entry screens. What we’ve done is cached all the combo box (drop down menu) items to avoid a lot of unnecessary database calls. If you have a database like the sample database I’m creating for the showcase video, this can result in a lot of extra processing that’s not really necessary. For example the tenant combobox can be easily cached, especially if you consider how often the tenant list changes versus how often we render that combobox (almost every data entry screen). This provided a significant performance increase to data screens with large databases (in my test case, this was 2659 tenants that didn’t need to be extracted from the database each time! We’ve done the same with all the major comboboxes and it made a noticeable change. The improvement went from 2-3 seconds to a virtually instantaneous display of all the data entry screens, with the exception of when there is an update to be made. If you’ve studied Graphical User Inteface (GUI) disciplines, you know that anything above 2 seconds agitates the users and makes them think the software is not responding. A significant improvement!

As I was saying, the dilemma is that if we’re about to release an update anyways in the near future, should we just tack on this new lease feature? It’s easy to say yes, but you have to remember that each new feature does cost us money to implement. And if we add that one feature, why not another one that’s really beneficial. For example we could also add the ability to convert suggested accounting entries that are late as accounting entries with no amount paid and no date paid (this is beneficial because if after a certain number of days your tenants haven’t paid you, you want to quickly take all the suggested accounting entries and mark them as unpaid. If you have a lot of these, it can take quite some time to manually edit the amounts and dates one by one)? What about adding a few new reports? This could be considered a minor upgrade. The dilemma is that, assuming we release next month, it will have been 10 months since our last release (not counting updates). Is a few new features in a year enough to warrant an upgrade? Will enough people whose license have expired purchase an upgrade? I don’t know, but I’d prefer to really make a convincing argument for an upgrade by giving them much more value than the cost of the upgrade! That’s just me.

So what are we to do? Do we give away more new feature for free as an update? Do we release a minor release after 10 months with only a few new features and performance enhancements? Will it be worth it for enough customers to purchase the upgrade and benefit from it? I don’t think either of these options is really any good… So the answer is I don’t know.

What we did decide though is that we’ll release a major update rather than a minor update very soon. Rather than just working on the 2.12 branch and adding the features there, we’ll release all the new features we’ve already implemented and tested for version 3.xx. We’d of course like to get all the new features we planned for that release, but instead what we’ll do is cut it a bit short and release it with everything we’ve already implemented (which is no small list). We’re going to do this because I believe there’s enough new value already implemented that most of our existing customers whose license is going to expire with the new major release will find more than enough value in it to buy the upgrade. By the way, just as a quick plug, remember that upgrades are discounted at 50% of the current price. Anyways, I know if it was me I’d prefer to have all the new features we’ve already implemented as part of a major upgrade, and there’s some great new features and benefits in there! If everything goes according to plan, we’re hoping to have the next major release available something in October as version 3.10! I’m not promising anything, but that’s what we’re currently anticipating.

Weekly 7

Screaming users considered good
The author says it best himself: “Bottom line: Every product evolves. It’s the rare (or trivial) that gets it right the first time and sticks with it for the rest of time. Listen to the screamers and whiners and people writing nasty blog posts. It’s painful and tough, but worth it. The screamers may not know it, but they’re really helping you out with the next release.”

Tutorial: How to Sabotage Yourself
A Tutorial that is Designed Especially for Self-loathers

The Econ 101 Management Method
Be careful when you measure performance because what you measure is exactly what you’ll get, whether or not that’s what you really want.

Debunking Zillow.com…
Greg shows several examples of properties that have sold with very different prices from Zillow’s home value estimate. He explains why he thinks Zillow is so off the actual selling price, and includes some of the email exchanges he’s had with them in this regard.

Business Geeks: Automated Software Testing as Competitive Advantage
Gives a fairly detailed explanation of why automated software testing can give a software company a competitive advantage

The Berserkonomics of One Rent-Stabilized Apartment Building
Very detailed story of how rent stabilization is affecting a property owner in New York. After everything is said and done, it’s almost impossible to imagine anyone with a mortgage making any kind of profit, never mind renovating the property!

The Full-Time Gap
If you ever thought of making your hobby into a Full-time business, this is an article I suggest you read.

"How Many Units Can It Handle?"

Since the beginning of the summer we’ve been continually revising our website (LandlordMax Property Management Software) with several goals in mind. One of these goals is to proactively answer our pre-sales questions, and so far we’ve been doing a good job at it because the number of repetitive pre-sales support questions have reduced in number. That is to say, the ones we had a tendency of receiving over and over are now being answered directly by the copy on the website.

The current common question we’re in the process of dealing with is: “How many units can the software handle?”, or some version of this. The first and simplest thing we did on the website is adjust the copy on the front page to include “store 1000’s of units”. Even though the database engine can store a lot more, in the millions, we decided to use a much lower number that our customers would perceive as reasonable. The second and probably the most powerful is that we’re in the process of creating a showcase flash animation link directly on the front page to replace the screenshot currently there. This animation/tutorial will use a database that larger than what 99% of our clients currently use, the largest database I’ve seen so far from a customer was 652 units. I’m sure there’s larger that we don’t know about, but it gives a good idea to the vast majority of our customers that the support can support a large database when one of this size doesn’t even cause it to flinch!

In any case, the database we’ve created to showcase LandlordMax has 2797 units! In terms of buildings, it’s got 211 (several multi-unit buildings, including some buildings with about 200 units). The database also includes 2659 tenants with 2535 leases (some tenants are potentials, etc.). As you can imagine, this is a lot of data for most real estate investors or property management companies. Although we could add a substantial amount more data to it, I believe this is significant enough to showcase the software.

Even though I’ll be answering this in more detail on LandlordMax, here’s some of the performance results we’ve seen with this particular database. The time to display the list of buildings, units, tenants is under 1 second (this includes time for the database and the software to render them). By the way, for those of you who think Java is slow, here’s a clear example that performance is based on the quality of the code and not the language!

I also ran some further tests with our most performance intensive report, the Rent Roll, and the results were very good. Before I give the actual numbers, let me explain a little why the Rent Roll report is so performance intensive. First, unlike other property management software applications, we give you the ability to run the Rent Roll report between any start and end date. This might not seem like such a big deal, but now imagine what happens if you put no start and end date? It will then generate a report listing every single rent ever due from all your leases!!! That’s a lot of data! In addition to finding when every single rent is due, it will also cross reference this data with the rest of the data to show the tenants name, their residing building, and in which unit they’re in, if it’s applicable. That means it’s combining information from 4 tables for each rent due. Also remember that this is for each rent due, not each lease, so if it’s a year lease this will include 12 seperate monthly rental amounts due. Finally it then computes the total amount of all these rents due for the whole period. Now that you have some idea of what’s involved in tabulating this particular report, the results included 33,290 rents due, or 521 pages of printed data! How long do you think this should take to generate? The report is generated in under 12 seconds on my computer!

Anyways, going back to the main point, the moral of the story is that you should continually update your company’s website copy to answer the most frequently asked questions from your customers. Not only does this reduce your pre-sales/support costs, but more importantly it will increase your sales conversion ratios.

Why a Balanced Portfolio Can Be Bad For You

I strongly believe a balanced portfolio, and especially the act of continually re-balancing it, is bad for you! Why? For three main reasons:

1. You shouldn’t have to force yourself to invest an exact percentage of your net worth in specific investment assets just to match your asset allocation percentages (for example you shouldn’t have to invest 50% of your money in stocks just because that’s what you allocated to it, there might not be that many deals out there worth it).

2. Each time you re-allocate you’re penalized with broker commissions and capital appreciation taxes

3. The most important point, each time you re-balance your portfolio, you’re losing money by moving money from your best performing assets to your worst performing assets. I’ve never ever seen this as a good way of making money!

Before I explain these three points in detail, let’s first look at why the modern balanced portfolio was created. Balanced portfolios were built with the intention of reducing market volatility. To quote, “The underlying logic behind the hybrids is simple: when stocks are hot, the funds will be able to tap the trend. When stocks are shaky, investors will probably seek shelter in bonds. That’s when the bond portfolio of a balanced or asset allocation fund will steady things.

I don’t deny this one bit, a balanced portfolio will generate a much smoother growth curve for you with reduced volatility, there’s no doubt about. You’ll see this in the examples I use to illustrate my point below. You could even create a real concrete sample with the exact values of the last 20 years and show very similar numbers. I would have done this except that I didn’t have the real numbers handy when I created these charts. If you have them, please feel free to post a link in the comments below and I’ll add a further example as time permits. In any case, the reality is that yes, it will reduce your market volatility. However, the longer you stay in the market and the more astute an investor you are, the less this is an issue.

Ok, we talked about reducing market volatility, but what about getting the best return? The balanced portfolio was not created to get the best return, it was created simply to reduce the volatility. It does this at the expense of a better return! I’m not willing to trade this, especially not after working the numbers. The difference is just not worth it…

Alright, now that we understand why this investment style was created, let’s look at why it’s not good. Let’s start with the easiest and simplest reason why not. How do you know what a correct balanced portfolio of your assets is? Is 50% in stock and 50% in bonds a good asset allocation? What about 25/75, 75/25, 10/90? What about a portion in options, commodities, etc. How do you really know what a good allocation is? What’s actually interesting is that depending on how you do this allocation, it will greatly affect how much return your going to receive versus how much volatility you’ll also receive. The more conversative the lower the return and volatility.

Balanced Portfolio 50/50 Split

Year Bond Stocks Total Return Rebalance Bond Rebalance Stock New Total Total Return
Start 1,000.00 1,000.00 2,000.00 1,000.00 1,000.00 2,000.00
1 1,040.00 1,120.00 2,160.00 8.00% 1,080.00 1,080.00 2,160.00 8.00%
2 1,081.60 1,254.40 2,336.00 8.15% 1,166.40 1,166.40 2,332.80 8.00%
3 1,124.86 1,404.93 2,529.79 8.30% 1,259.71 1,259.71 2,519.42 8.00%
4 1,169.86 1,573.52 2,743.38 8.44% 1,360.49 1,360.49 2,720.98 8.00%
5 1,216.65 1,762.34 2,978.99 8.59% 1,469.33 1,469.33 2,938.66 8.00%
6 1,265.32 1,973.82 3,239.14 8.73% 1,586.87 1,586.87 3,173.75 8.00%
7 1,315.93 2,210.68 3,526.61 8.87% 1,713.82 1,713.82 3,427.65 8.00%
8 1,368.57 2,475.96 3,844.53 9.01% 1,850.93 1,850.93 3,701.86 8.00%
9 1,423.31 2,773.08 4,196.39 9.15% 1,999.00 1,999.00 3,998.01 8.00%
10 1,480.24 3,105.85 4,586.09 9.29% 2,158.92 2,158.92 4,317.85 8.00%
11 1,539.45 3,478.55 5,018.00 9.42% 2,331.64 2,331.64 4,663.28 8.00%
12 1,601.03 3,895.98 5,497.01 9.55% 2,518.17 2,518.17 5,036.34 8.00%
13 1,665.07 4,363.49 6,028.57 9.67% 2,719.62 2,719.62 5,439.25 8.00%
14 1,731.68 4,887.11 6,618.79 9.79% 2,937.19 2,937.19 5,874.39 8.00%
15 1,800.94 5,473.57 7,274.51 9.91% 3,172.17 3,172.17 6,344.34 8.00%
16 1,872.98 6,130.39 8,003.37 10.02% 3,425.94 3,425.94 6,851.89 8.00%
17 1,947.90 6,866.04 8,813.94 10.13% 3,700.02 3,700.02 7,400.04 8.00%
18 2,025.82 7,689.97 9,715.78 10.23% 3,996.02 3,996.02 7,992.04 8.00%
19 2,106.85 8,612.76 10,719.61 10.33% 4,315.70 4,315.70 8,631.40 8.00%
20 2,191.12 9,646.29 11,837.42 10.43% 4,660.96 4,660.96 9,321.91 8.00%
Balanced Portfolio 25/75 Split
Year Bond Stocks Total Return Rebalance Bond Rebalance Stock New Total Total Return
Start 500.00 1,500.00 2,000.00 500.00 1,500.00 2,000.00
1 520.00 1,680.00 2,200.00 10.00% 550.00 1,650.00 2,200.00 9.09%
2 540.80 1,881.60 2,422.40 10.11% 605.00 1,815.00 2,420.00 9.09%
3 562.43 2,107.39 2,669.82 10.21% 665.50 1,996.50 2,662.00 9.09%
4 584.93 2,360.28 2,945.21 10.31% 732.05 2,196.15 2,928.20 9.09%
5 608.33 2,643.51 3,251.84 10.41% 805.26 2,415.77 3,221.02 9.09%
6 632.66 2,960.73 3,593.39 10.50% 885.78 2,657.34 3,543.12 9.09%
7 657.97 3,316.02 3,973.99 10.59% 974.36 2,923.08 3,897.43 9.09%
8 684.28 3,713.94 4,398.23 10.68% 1,071.79 3,215.38 4,287.18 9.09%
9 711.66 4,159.62 4,871.27 10.76% 1,178.97 3,536.92 4,715.90 9.09%
10 740.12 4,658.77 5,398.89 10.83% 1,296.87 3,890.61 5,187.48 9.09%
11 769.73 5,217.82 5,987.55 10.90% 1,426.56 4,279.68 5,706.23 9.09%
12 800.52 5,843.96 6,644.48 10.97% 1,569.21 4,707.64 6,276.86 9.09%
13 832.54 6,545.24 7,377.78 11.04% 1,726.14 5,178.41 6,904.54 9.09%
14 865.84 7,330.67 8,196.51 11.10% 1,898.75 5,696.25 7,595.00 9.09%
15 900.47 8,210.35 9,110.82 11.15% 2,088.62 6,265.87 8,354.50 9.09%
16 936.49 9,195.59 10,132.08 11.21% 2,297.49 6,892.46 9,189.95 9.09%
17 973.95 10,299.06 11,273.01 11.26% 2,527.24 7,581.71 10,108.94 9.09%
18 1,012.91 11,534.95 12,547.86 11.31% 2,779.96 8,339.88 11,119.83 9.09%
19 1,053.42 12,919.14 13,972.57 11.35% 3,057.95 9,173.86 12,231.82 9.09%
20 1,095.56 14,469.44 15,565.00 11.40% 3,363.75 10,091.25 13,455.00 9.09%
Balanced Portfolio 75/25 Split
Year Bond Stocks Total Return Rebalance Bond Rebalance Stock New Total Total Return
Start 1,500.00 500.00 2,000.00 1,500.00 500.00 2,000.00
1 1,560.00 560.00 2,120.00 6.00% 1,590.00 530.00 2,120.00 6.00%
2 1,622.40 627.20 2,249.60 6.11% 1,685.40 561.80 2,247.20 6.00%
3 1,687.30 702.46 2,389.76 6.23% 1,786.52 595.51 2,382.03 6.00%
4 1,754.79 786.76 2,541.55 6.35% 1,893.72 631.24 2,524.95 6.00%
5 1,824.98 881.17 2,706.15 6.48% 2,007.34 669.11 2,676.45 6.00%
6 1,897.98 986.91 2,884.89 6.60% 2,127.78 709.26 2,837.04 6.00%
7 1,973.90 1,105.34 3,079.24 6.74% 2,255.45 751.82 3,007.26 6.00%
8 2,052.85 1,237.98 3,290.84 6.87% 2,390.77 796.92 3,187.70 6.00%
9 2,134.97 1,386.54 3,521.51 7.01% 2,534.22 844.74 3,378.96 6.00%
10 2,220.37 1,552.92 3,773.29 7.15% 2,686.27 895.42 3,581.70 6.00%
11 2,309.18 1,739.27 4,048.46 7.29% 2,847.45 949.15 3,796.60 6.00%
12 2,401.55 1,947.99 4,349.54 7.44% 3,018.29 1,006.10 4,024.39 6.00%
13 2,497.61 2,181.75 4,679.36 7.58% 3,199.39 1,066.46 4,265.86 6.00%
14 2,597.51 2,443.56 5,041.07 7.73% 3,391.36 1,130.45 4,521.81 6.00%
15 2,701.42 2,736.78 5,438.20 7.88% 3,594.84 1,198.28 4,793.12 6.00%
16 2,809.47 3,065.20 5,874.67 8.03% 3,810.53 1,270.18 5,080.70 6.00%
17 2,921.85 3,433.02 6,354.87 8.17% 4,039.16 1,346.39 5,385.55 6.00%
18 3,038.72 3,844.98 6,883.71 8.32% 4,281.51 1,427.17 5,708.68 6.00%
19 3,160.27 4,306.38 7,466.65 8.47% 4,538.40 1,512.80 6,051.20 6.00%
20 3,286.68 4,823.15 8,109.83 8.61% 4,810.70 1,603.57 6,414.27 6.00%

Assuming we do know what a good balanced asset allocation is, how do we know we can actually find any good deals in those classes, never mind great deals? How do we know we can again find the same percentages of good deal each and every year when we need to rebalance our portfolio? Sometimes stocks are overpriced, other times bonds are a bad investment… The same can be said for all investment classes and vehicles. Maybe it’s sector based, maybe industry, maybe equity based, etc. How can you know that you will find good deals year over year in each of your asset classes for the percentages you need? If you look at Warren Buffett, who doesn’t really limit himself in terms of investment classes other than those he can understand, he has often been found to say that there are no good investments at this time. Therefore he would rather hold cash with a very low return than buy assets that are underperforming, he’d rather wait for that great deal because the return on investment is worth it many times over! Here you would be forcing your hand because you decided that x% of your assets should be allocated in this type of investment versus that type, whether it’s a good deal or not.

So far we know that we don’t really know how to split up our investment appropriately and that it’s highly unlikely we’ll find good deals each year in all our asset classes (stocks, bonds, etc.) for the rebalancings that we enforce upon ourselves. But what about the extra commission costs each year to re-allocate our assets? If I buy a stock that’s performing well for 5-10 years, as long as I don’t sell it, I don’t pay any commissions or taxes! With an value based portfolio I assume a minimum holding period of 3-10 years (Buffett suggests an infinite holding period) which I myself generally do (the only time I sold my stocks was to cash out to start my company LandlordMax). Going back to commissions, yes, this is a small amount but it does add up if you do it each and every year over multiple trades. Let’s assume a 1% commission rate, that means that each year you lose 1%. Compound that over time and it quickly adds up. 1% over 20 years compounded on a compounded amount is a lot.

What hits you harder though is capital appreciation taxes when rebalancing each year. Since I’ve already written about the drastic affects capital appreciation taxes can have, I’ll only write a small quick example and let you refer to my prior article for the details. Assuming you bought $10,000 shares of company xyz with a 12% rate of return, after year 1 you’d have $11,200. Depending on how many you need to sell to balance your portfolio, you’ll need to pay taxes on those gains. Assuming you need to sell $1000 to rebalance your portfolio with a 36% tax rate, you’ll lose $360 of your gains. That’s $360 that can’t be compounded each year just because your portfolio didn’t match your exact percentages! And remember this number will drastically increase as the size of your portfolio does.

Alright, now that we know the simple reasons, let’s look at the last and most important reason of why. Each time you rebalance your portfolio, you’re in essence trading some of your best performing assets for some more of your worst performing assets. To put it in another way, you’re selling your best performing asset to buy more of your worse performing asset. If I ever heard of a bad way to make money, this would be it! In business you generally try to shed away your worse business units. In real estate you generally try to sell your low cashflow (or cashflow negative) properties. In a balanced portfolio you’re trying to get rid of some of your best performing investments to invest more money into your worst performing ones. That makes no sense to me!!!

I know that for some of you this might not be intuitive, so let’s look at the details, let’s crunch some numbers. Now before I begin, I’ll just let you know that all these numbers have some assumptions for simplicity. All the example below assume a portfolio of two assets, stocks and bonds. They assume a 4% rate of return on bonds (near today’s rate) and a 12% rate of return for stocks. The timeline is also assumed to be 20 years, except for the final example which is for 50 years.

So what I did to crunch the number is try 3 different ways to balance a portfolio of stocks and bonds. I worked out 75%/25%, 50%/50%, and 25%/75% splits. In every single scenario the balanced portfolio made less money. Please note also that none of the scenarios took into consideration the extra losses due to commissions and especially to capital appreciation taxes, as we mentioned above. Therefore in reality the discrepency would be even larger!

Anyways, looking at the numbers, what I found is that if you start a portfolio with a specific balance and let it play out, over time it will increase it’s rate of return to that of the best performing asset. This makes perfect sense because that asset will take up a larger and larger percentage of your total portfolio. To give an example, if you start with a 25% stock and 75% bond allocation, over time the stocks will become a larger and larger percentage of your total portfolio (for those of you who are mathematicians, if you do a limit to infinity eventually the stocks will approach 100% of the portfolio as they’ll completely dwarf the bonds in size). Using our above assumptions, after 15 years stocks become more than 50% of the portfolio ($2,736.78 versus $2,701.42 for bonds). After 50 years, assuming a starting balance of $500 in stocks and $1500 in bonds, the difference is a 14 to 1 ratio! The balance becomes $144,501.09 in stocks and $10,660.03 for bonds. A very large discrepency!

Balanced Portfolio 75/25 Split Over 50 Years
Year Bond Stocks Total Return Rebalance Bond Rebalance Stock New Total Total Return
Start 1,500.00 500.00 2,000.00 1,500.00 500.00 2,000.00
1 1,560.00 560.00 2,120.00 6.00% 1,590.00 530.00 2,120.00 6.00%
2 1,622.40 627.20 2,249.60 6.11% 1,685.40 561.80 2,247.20 6.00%
3 1,687.30 702.46 2,389.76 6.23% 1,786.52 595.51 2,382.03 6.00%
4 1,754.79 786.76 2,541.55 6.35% 1,893.72 631.24 2,524.95 6.00%
5 1,824.98 881.17 2,706.15 6.48% 2,007.34 669.11 2,676.45 6.00%
6 1,897.98 986.91 2,884.89 6.60% 2,127.78 709.26 2,837.04 6.00%
7 1,973.90 1,105.34 3,079.24 6.74% 2,255.45 751.82 3,007.26 6.00%
8 2,052.85 1,237.98 3,290.84 6.87% 2,390.77 796.92 3,187.70 6.00%
9 2,134.97 1,386.54 3,521.51 7.01% 2,534.22 844.74 3,378.96 6.00%
10 2,220.37 1,552.92 3,773.29 7.15% 2,686.27 895.42 3,581.70 6.00%
11 2,309.18 1,739.27 4,048.46 7.29% 2,847.45 949.15 3,796.60 6.00%
12 2,401.55 1,947.99 4,349.54 7.44% 3,018.29 1,006.10 4,024.39 6.00%
13 2,497.61 2,181.75 4,679.36 7.58% 3,199.39 1,066.46 4,265.86 6.00%
14 2,597.51 2,443.56 5,041.07 7.73% 3,391.36 1,130.45 4,521.81 6.00%
15 2,701.42 2,736.78 5,438.20 7.88% 3,594.84 1,198.28 4,793.12 6.00%
16 2,809.47 3,065.20 5,874.67 8.03% 3,810.53 1,270.18 5,080.70 6.00%
17 2,921.85 3,433.02 6,354.87 8.17% 4,039.16 1,346.39 5,385.55 6.00%
18 3,038.72 3,844.98 6,883.71 8.32% 4,281.51 1,427.17 5,708.68 6.00%
19 3,160.27 4,306.38 7,466.65 8.47% 4,538.40 1,512.80 6,051.20 6.00%
20 3,286.68 4,823.15 8,109.83 8.61% 4,810.70 1,603.57 6,414.27 6.00%
21 3,418.15 5,401.92 8,820.08 8.76% 5,099.35 1,699.78 6,799.13 6.00%
22 3,554.88 6,050.16 9,605.03 8.90% 5,405.31 1,801.77 7,207.07 6.00%
23 3,697.07 6,776.17 10,473.25 9.04% 5,729.62 1,909.87 7,639.50 6.00%
24 3,844.96 7,589.31 11,434.27 9.18% 6,073.40 2,024.47 8,097.87 6.00%
25 3,998.75 8,500.03 12,498.79 9.31% 6,437.81 2,145.94 8,583.74 6.00%
26 4,158.70 9,520.04 13,678.74 9.44% 6,824.07 2,274.69 9,098.77 6.00%
27 4,325.05 10,662.44 14,987.49 9.57% 7,233.52 2,411.17 9,644.69 6.00%
28 4,498.05 11,941.93 16,439.99 9.69% 7,667.53 2,555.84 10,223.37 6.00%
29 4,677.98 13,374.97 18,052.94 9.81% 8,127.58 2,709.19 10,836.78 6.00%
30 4,865.10 14,979.96 19,845.06 9.93% 8,615.24 2,871.75 11,486.98 6.00%
31 5,059.70 16,777.56 21,837.26 10.04% 9,132.15 3,044.05 12,176.20 6.00%
32 5,262.09 18,790.86 24,052.95 10.15% 9,680.08 3,226.69 12,906.77 6.00%
33 5,472.57 21,045.77 26,518.34 10.25% 10,260.88 3,420.29 13,681.18 6.00%
34 5,691.47 23,571.26 29,262.73 10.35% 10,876.54 3,625.51 14,502.05 6.00%
35 5,919.13 26,399.81 32,318.94 10.44% 11,529.13 3,843.04 15,372.17 6.00%
36 6,155.90 29,567.79 35,723.69 10.53% 12,220.88 4,073.63 16,294.50 6.00%
37 6,402.13 33,115.92 39,518.06 10.62% 12,954.13 4,318.04 17,272.17 6.00%
38 6,658.22 37,089.83 43,748.05 10.70% 13,731.38 4,577.13 18,308.50 6.00%
39 6,924.55 41,540.61 48,465.16 10.78% 14,555.26 4,851.75 19,407.01 6.00%
40 7,201.53 46,525.49 53,727.02 10.86% 15,428.58 5,142.86 20,571.44 6.00%
41 7,489.59 52,108.54 59,598.14 10.93% 16,354.29 5,451.43 21,805.72 6.00%
42 7,789.18 58,361.57 66,150.74 10.99% 17,335.55 5,778.52 23,114.07 6.00%
43 8,100.74 65,364.96 73,465.70 11.06% 18,375.68 6,125.23 24,500.91 6.00%
44 8,424.77 73,208.75 81,633.52 11.12% 19,478.22 6,492.74 25,970.96 6.00%
45 8,761.76 81,993.80 90,755.57 11.17% 20,646.92 6,882.31 27,529.22 6.00%
46 9,112.23 91,833.06 100,945.29 11.23% 21,885.73 7,295.24 29,180.97 6.00%
47 9,476.72 102,853.03 112,329.75 11.28% 23,198.88 7,732.96 30,931.83 6.00%
48 9,855.79 115,195.39 125,051.18 11.33% 24,590.81 8,196.94 32,787.74 6.00%
49 10,250.02 129,018.83 139,268.86 11.37% 26,066.26 8,688.75 34,755.01 6.00%
50 10,660.03 144,501.09 155,161.12 11.41% 27,630.23 9,210.08 36,840.31 6.00%

As you saw in the examples above, in each and every case the balanced portfolio falls behind the unbalanced portfolio. The numbers don’t lie! I challenge you to try to find a balanced portfolio that will beat an unbalanced portfolio over 20 years (assuming an even allocation of assets at the beginning, so for example if you use stocks and bonds only, the portfolio would start with 50% stocks and 50% bonds). Of course I’ll want to see the numbers and the details, but if you do I will post a full entry about it giving you full credit, it won’t just be post in the comments! I’m so sure of this that I’ll even offer a free copy of LandlordMax Property Management Software to the first person who can find an example where a balanced portfolio will beat an unbalanced portfolio over 20 years!

Before I finish, let me leave you with a few additional thoughts. A balanced portfolio assumes that you’re qualified to find deals in all your different asset classes (stocks, bonds, etc.). I personally don’t believe anyone can find deals in all asset classes, it’s just too much information for any one person to know. I also personally believe that you should only invest in what you know and understand well, no matter what the investment class it is. By having a balanced portfolio, you’re forcing yourself to invest in asset classes that might not be right for you or that you have limited knowledge in.

Another quick note about the balanced portfolio investment style is that it assumes the market is efficient. The reality is that this is simply not true! Markets are not efficient, there are emotions and speculation. Anyone want to explain the dot com boom and bust in terms of an efficient market? I think not! The reality is that the market is not efficient because there are always deals to be had. Just like in the real estate market, there are always good and bad opportunities.

In any case, to finish up as I could point out several other issues I have with the balanced portfolio investment style, I think you can already see why it’s not an optimal investment strategy. The whole reason it was invented was not to be optimal but rather to reduce volatily! Don’t ever forget that! Only use this investment method if that’s your goal, don’t use it for any other reason.

Weekly 7

101 Ways to Build Link Popularity in 2006
Some great advice on how to build links for your website

Software: It’s a Gas
Jeff re-iterates the four laws of software quite well.

How to get users to RTFM
Very good article on how to provide better support for your users through 5 different types of manuals.

What Slows Windows Down?
This is the last page of the report and it shows some interesting statistics on how different software applications can affect your system.

The Best Computer Upgrade Ever
Sometimes a faster processor is not always the best upgrade. Don’t forget to consider getting a large monitor.

The World’s Billionaires
A density map of the billionaire’s accross the world

The start-up inflection point
Interesting observation of how a software company transitions from a small startup to a larger business.

Ideas are a Dime a Dozen

I don’t know if I’ve posted about this before, but it keeps coming up over and over again with people I talk who want to start a businesses, invest in real estate, start new projects, etc. Either they don’t have a new novel idea to start with, or if they do, they think the idea is worth a mint. The reality is that both of these preconceptions are dead wrong! Ideas are worth very little, it’s the execution that’s worth it’s weight in gold!

Let’s think about this a little… How many times have you heard someone say something like “I thought of that years ago. I should be a millionaire”. I know I’ve heard it a lot. The reality is that 99.99% of the general population doesn’t follow through with their ideas, at least not much past the first few months. Most people aren’t willing to put in the effort it takes to get an idea off the ground. And make no mistake about it, it takes effort. By the way, health gyms are notorious for using this to their advantage. They get you to buy a year membership, with an initiation fee, knowing full well that the majority of their members will stop using the facilities within a few months. Are you one of these people?


I can also tell you that I come up with potentially successful business ideas every day. The problem is that I can’t try them all out. You need to focus on one idea and push through it because it will take time for it to come to fruition. If you decide to invest in real estate, than expect it to take you many properties and deals before you can retire, you won’t retire on one golden deal (also you probably won’t have the experience to know what a golden deal is without some experience). In business the same is true, it takes time for a business to gain momentum and get off the ground. Don’t keep moving from project to project, which is easy to do as soon as you hit a speed bump or when you think of something new and exciting. If you study psychology at all (or probably through common sense), you’ll know that people like novelty more than repetition, so it’s very easy to get sidetracked.

On the other side of the coin, you have those who think they need to come up with a golden idea to make it. They think that everything’s done and there’s nothing they can do. Guess again, there’s lots of things everyone can do, you just need to put your mind to it. And please don’t ask me what you can do, that’s what you have to come up with yourself. Make that your first goal! Come up with an idea. Now don’t think it has to be original, it doesn’t. Just look at what’s happening in your area of interest, see what others are doing, look at who’s succeeding, and see if there’s more room in the market for you. How many grocery chains are there, movie rental chains, real estate investors, software companies, chocolate bar producers, tv shows, etc. You don’t need to be original, you just need to look at it from a slightly different angle. Maybe a higher quality, cheaper price, best locally, fastest, better service, etc.

The next major obstacle I often hear is that I don’t have enough money to get going. The reality is that if you think too big to start, than absolutely you don’t have the money. You might need to start smaller and grow from there. If you’re a real estate investor, start with a single resident home instead of with an apartment complex. Maybe one in a more affordable community. If it’s a business, look at something that can be started with your current capital. It can be as simple as a web service, a blog, a software application. You could even sell cookies, a lot of large companies have started this way.

Barney Dinosaur Plush Doll

Who’s familiar with the purple dinosaur Barney? How many of you know it was started by a mother (Sheryl Leach) in 1987 as home videos she wrote and filmed herself because she was dissatisfied with the selection of home videos on the market to amuse her own son? She produced three “Barney and the Backyard Gang” videos and marketed then to day-care centers and video stores until they were finally discovered by a PBS director in 1991. And the rest, to quote a cliche, is history.

So what are the steps to success?

1. Get started! That means now! We all have things happening in our lives, it’s just a matter of priorities. If you can find the time to watch any TV, then you can find the time to get started. I can tell you right now that for me it’s 11:15pm right now (actually I’m now revising this entry, minus some LandlordMax related sidetracks, and it’s 12:35am now) and I’ll be up on the computer for at least another hour or two working (as I’ve just confirmed). I live by the principle of work extremely hard for 5 or so years and then completely relax for the rest of my life rather than work moderatly for my whole life. So get started, find the time, it’s there.


2. It’s a marathon, not a sprint. That is, stay the course. Yes, you’re all pumped and the first 2-3 weeks go flying by. You get some work done but suddenly its your friends wedding on the weekend. One weekend isn’t so bad. But the next thing you know you have a party you just have to attend, a supper, a celebration, a birthday. And then there’s the bbq the weekend afterwards at your parents. And not to mention the fact that it’s SuperBowl weekend right after and everyone meets up for that. Suddenly a month goes by and nothing gets done, so you stop working. The project pitters to a dead stop. This is exactly how health gyms make their money! Stay the course. Push yourself. Set your priorities. Know what’s important to you and live accordingly.

3. Educate yourself. This means spend time AND money on educating yourself. I think I’ve read every book there is on real estate, business, marketing, sales, software development, etc. I try to read one book a week that’s related to what I’m trying to do. Yes I still read the odd novel, but again, base your priorities on what you want. A novel to me is like going to the movies, so I read them when I need a break. Not all my books are interesting, actually I can tell you many are really pretty boring and hard to read, but the content is worth the effort. Try to read a lot of what will help you succeed. The unfortunate side is that it’s not always the most interesting material.

Also attend seminars, talk to people in your industry, join like minded groups. For example, I belong to several local groups, the latest of which was just formed. This last one is a group focused on generating passive income here in Ottawa that meets once a month to discuss any and all passive income opportunities available out there (stocks, real estate, automated businesses, web sites, etc.) Take the time to educate yourself, you’re worth it.

Rich Dad Poor Dad

4. Spend on yourself. Most people think that they can start a business, invest in real estate, and so on, with just time. It’s possible, but don’t be afraid to invest money on yourself. I can’t tell you how many people get flustered when I start to share my expenses in regards to LandlordMax and FollowSteph. They’re all pumped to get started, but as soon as I suggest they look at investing $500-$1000 on themselves and their idea, WAIT A MINUTE!!! “I don’t know, that’s seems like an aweful lot of money.” Well let me put it another way, if you don’t even believe in yourself and your idea enough to put down a little money on it, do you think anyone else will? Why are so many people afraid to invest in themselves? I don’t understand it. Don’t they realize that their employers are doing just that, they expect to make more money from their labour and skills than they pay them (that’s how business works)? I can’t imagine a world in which I wouldn’t be willing to invest in myself and my ideas. I do it all the time. Actually, I’ve been known to be a little trigger happy in this regard. I’m willing to take the chance sooner than later as I’m a big fan of trying rather than theorizing. After all you can’t debate with results, right or wrong (and I’ve proven myself both right and wrong many times).

5. Stay focused. I can’t even count any more how many people have asked me to co-venture with them… From small to larger projects. In the past I would generally hear everyone out, consider their ideas, and possibly be interested, in the least I’d offer some guidance. Today I have a different perspective. After having gone through it so many times, I now tell people that if they have an idea they’d like me to consider as a co-venture, come talk to me again about it in 6-12 months, whether or not they’re succeeding. Why 6-12 months? Simply because I want to see if they’re going to stick with their projects. Again, it all comes down to the fact that the vast majority of people, good intentions or not, will for some reason or another, start to lose interest in their projects within a few months. All I’m trying to do is weed these people out. So far I only know of a very small select few people who’ve gone beyond this! I don’t care whether their succeeding after this time, everyone has different areas of expertise and maybe its something simple their missing, maybe it’s not the great idea it seemed, maybe its an amazing success I missed an opportunity on, it doesn’t matter. I’m personally not interested in any co-ventures unless the person has put in at least 6-12 months of effort, to show me that they’re going to stay the course, that they’re focused, that they’re not just another health gym statistic.

6. Stick to your idea, test it. Lastly, don’t run away as soon as you hit a road block. Get past it. Go around it. Go in a slightly different direction. But keep moving. I can’t tell you how many people hit a road block and stop. If I did that with LandlordMax, well I wouldn’t be here. It’s now been over 3 years now, 4 if you count the year in which I created the initial version. If you think there weren’t some brutal road blocks, think again! To use one of my favorite quotes from I can’t remember who: “It took me 10 years to become an overnight success!“.

And with that, let me just say, you can’t make a journey around the world without first taking a step, so take it! Henry Ford put it another way: “You can’t build a reputation on what you are going to do.” Or as a fellow business owner and investor of mine, Glenn Scott put it: “I would rather see a stupid do’er than a brillant dreamer“.



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